The Hindu Business Line : Excise sops lure pharma, FMCG firms to the hills

THE hills seem to be alive with business booming. Companies spanning pharmaceuticals, fast moving consumer goods (FMCG) and some other sectors have been lured by the hills and have begun to establish manufacturing facilities in far-flung Jammu and Kashmir (J&K) and earlier in Baddi (Himachal Pradesh) and Uttaranchal.

Among the ones moving to the Samba Valley in Jammu are Cadila Pharmaceuticals, Sun Pharmaceuticals, Ind-Swift Laboratories and Medley Pharmaceuticals, besides Dabur India Ltd.

Merchant banking sources said that some other companies are also examining the possibility of establishing manufacturing bases in the district. Local companies in Kashmir too seem to be rearing their heads and enhancing business prospects, as well as capacities.

Srinagar-based FIL Industries Ltd has just announced its foray into packaged fruit juices with Kohinoor brand. It set up a packaging plant in Srinagar in association with Tetrapak.

But why are the hills being specifically chosen for forays? Analysts said that most of these destinations are being promoted as excise-free zones by the respective State Governments besides offering income-tax and other exemptions. While J&K does not provide excise exemption, it offers excise refund to companies that agree to set up shop.

"Besides other tax concessions, Baddi and Uttaranchal also offer excise duty exemption which J&K does not. However, since companies pay the excise duty, they will be able to take advantage of Modvat credit and many companies have decided to avail themselves of the Modvat credit by moving to J&K," industry sources said.

The FMCG industry is upbeat about capacity expansion over the next two years mainly on the strength of these locations. According to a study by SSKI Securities, the largest capex is being planned by HLL with Rs 250-crore investment over the next two years. Also, Colgate has earmarked Rs 70-crore investment over two years at Baddi for toothpaste.

Godrej Consumer Products has chalked out a Rs 22-crore investment in a soap plant at Baddi, whereas Titan Industries is putting Rs 50 crore over two years in a watch assembly plant there.

Speaking to Business Line, a top official of Cadila said that the company is in the process of setting up a manufacturing facility in that district, while a Sun Pharma spokesperson said that their unit has been operational for close to a year. "We are very happy with the performance of our Jammu plant which is manufacturing formulations."

According to Mr V.K. Mehta, Joint Managing Director, Ind-Swift Laboratories, "Our plant, under construction in the Samba Valley, will manufacture active pharmaceutical ingredients (APIs) for the domestic market."

Analysts said FMCG companies would end up having net savings of 5-6 per cent through capacity expansion in these geographies. "Shampoos attract 9.6 per cent excise on MRP, of which only about 2-3 per cent is modvatable. Taking into account higher transportation costs and the absence of Modvat benefit, costs will still be lower through own manufacturing."

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